Flats in the much-touted development are being handed out as freebies to buyers of luxury properties in Shanghai

She doesn’t know it yet, but when Peach, a nine-month-old Chinese girl, grows up she will be living in paradise, with white sandy beaches, fresh air and access to some of the world’s top schools.

Her grandparents, who are from the factory town of Hangzhou in the polluted parts of eastern China, have invested in a bungalow in a real estate project in south Malaysia, which is being describes as “a prime model of a future city” and “an exclusive island living paradise.”

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Situated across the strait from Singapore, Forest City is one of the world’s most grandiloquent real estate schemes and is developed by China’s third-largest property developer Country Garden.

When it is finished, the city will house 700,000 people. Most of them are expected to be from mainland China.

“I’m so happy that Peach will grow up here,” says grandmother Zhu Shu Hua when we meet at the project’s showroom in Singapore. “I believe it will be a good Chinese community here, like a Chinatown.”

Traveling by car from central Singapore across the strait to the man-made island where the project is being erected takes less than an hour.

It’s Sunday morning and the gigantic showroom is packed with mainland Chinese prospectors who all seem eager to invest in the US$100 billion city, which will combine lush green beachfront property with the comforts for children and the elderly alike.

A model of Forest City, which will house 700,000. Photo: Asia Times/Johan Nylander

With prices at a fraction of what similar-sized pads cost in downtown Shanghai or Beijing, investment-hungry mainlanders have been flooding in.

The project was also at the center of one of the biggest advertising campaigns yet in China, media reports said. It has been described as a new Shenzhen, the Chinese boomtown just across the border from Hong Kong.

“Forest City is the first smart city in Malaysia. Actually, in the whole world I would say. I understand why many people want to invest here, as more and more Chinese people come here for work and better living,” said Grace Tang, a consultant for developer Country Garden’s international sales showroom, as she guides people through the huge showroom. “This city will flourish.”

Every day, Chinese travel agents fly in some 500 mainlanders on chartered flights, Tang says. People from China have bought most of the flats that had been sold; about half had been an investment purchase, while the rest are for self-use, she says.

“In the beginning, the number of people flying in to invest was crazy. Although it has changed, the interest is still hot, and the craziness is not yet over,” she says.

With prices a fraction of what similar-sized pads cost in downtown Shanghai or Beijing, mainlanders have been flooding in to Forest City. Photo: Asia Times/Johan Nylander

Apart from bungalows and spacious apartments, the islands – which are the size equivalent to four of New York’s Central Parks – will have numerous skyscrapers for banks and offices.

Children will have access to top education including at the prestigious Shattuck-St Mary’s School – a boarding school in Minnesota which will open in Malaysia – and Marlboro College nearby. In addition, there will be shopping malls, sports fields, beaches and all the other imaginable amenities needed in a newly built city. Roads and public transport have been placed low on the priority list, even underground, making the city visibly car-free.

The islanders will also be protected with top-notch security; surveillance drones will hover in the air, while Nepali Gurkha soldiers will patrol the grounds.

The model apartments are stylishly decorated in minute detail from French cookbooks in the kitchens, next to fully laid dinner tables with flowers and bottles of red wine.

The model apartments in Forest City are all stylish decorated. Photo: Johan Nylander

However, cracks are starting to appear in the Forest City façade.

Peach’s mother, Melody Wang who lives in Singapore, tells me they have a conflict with Country Garden. The family had opted in for a second apartment on the island, and was promised the possibility of a quick return by the sales representative as well as postponed instalments. But what the sales guy said and what actually was in the fine print of the contract was different, Wang says.

“All contracts are in English and most Chinese buyers don’t know what they are signing. And the company only accepts lawyer they have assigned. We have our own lawyer, but could not use him,” she says. “It feels like a scam. Now we can’t get all our deposit back from Country Garden.”

Numerous mainlanders have reportedly also been caught in the crossfire as Beijing’s intensifying efforts to stop money from leaving the country have cast doubt over Forest City and other similar marquee investments.

Although the developer is Chinese, the payments must be made in Malaysia.

Many investors now say they have run into problems making payments on their Forest City apartments, and can’t get their deposits back.

“I‘ve lost confidence in this project and I don’t want to pay any more,” 39-year-old Kitty Zhu from the southern Chinese city of Zhuhai, who has paid nearly US$44,000 of the US$334,000 purchase price of a flat here, told the New York Times. “I told my salesman that I want a refund, but he just avoids me.”

The biggest villa in Forest City has four floors and a private lift. It’s guarded by Nepali Gurkha soldiers. Photo: Asia Times/Johan Nylander

Real estate services firm Jones Lang LaSalle said the Chinese invested a staggering US$33 billion in overseas commercial and residential property deals last year, which marked a new record and a 53% year-on-year increase.

The Beijing government has recently sharpened its tone on how its citizens are investing in property abroad, and tighten outflows of cash.

Beijing’s move seems to have had an immediate effect. As of January this year, the number of Chinese firms invested in offshore properties had fallen by 84% compared to a year earlier, according to figures from China’s Ministry of Commerce.

One of the many guest rooms in Forest City villa. Photo: Asia Times/Johan Nylander

Representatives for Country Garden claim only a few dozen buyers from the mainland want to cancel their transactions in the project.

But one sales consultant in Singapore said the negative press on Beijing’s capital controls had been damaging for sales. It has also been reported that Country Garden temporarily closed its sales showrooms in China due to government pressure, which the company denies.

“It is a major problem for some developers, which have megaprojects overseas, as it appears they sell, and were intended to sell, mainly to Chinese investors rather than local buyers,” Nigel Stevenson, an analyst at GMT Research in Hong Kong, told the NYT.

“Anecdotally it does seem much harder for Chinese buyers to transfer money offshore to pay for properties,” he added.

Forest City, in Johor Bahru, Malaysia, is a “smart city” under development by China’s Country Garden. This is a model in a Singapore showroom. Photo: Johan Nylander

For Country Garden it’s crucial to keep the mojo up. According to one sales consultant working for Country Garden, flats in Forest City are being handed out as a freebies to buyers of luxury properties in Shanghai.

“I’ve heard about such cases. If you buy an expensive apartment by Country Garden in Shanghai, you can get one here for free,” the salesman said. “Those deals can only be made at the offices in China, not here.”

Other sales staff in Malaysia and Singapore denied that such freebie deals existed, but were happy to offer several layers of discounts for a quick cash deal.

Traveling through the city of Johor Bahru, also known as JB, where the project is located, yet another risk for potential investors became obviously clear – oversupply.

Forest City is under development on man-made islands in the strait between Singapore and Malaysia. Photo: Asia Times/Johan Nylander

Forest City is the largest of no less than 60 development projects in the Iskandar Malaysia free-trade zone around Johor Bahru. Building cranes and skeletons of constructions-to-be are shooting up all along the motorways as well as in the city center.

Some half a million of new apartments are in the pipeline over the coming years and the massive supply has had a negative effect on property prices in the region, according to Bloomberg.

Average resale prices per square foot for high-rise flats in JB fell 10% last year, according to property consultant CH Williams Talhar & Wong. Global property consultancy Knight Frank in Malaysia warns that office and retail markets will continue to be under pressure with rental and occupancy due to oversupply.

Forest City is the largest of 60 real estate projects in the Iskandar Malaysia free-trade zone. Building cranes are everywhere. Photo: Asia Times/Johan Nylander

At a shopping mall in JB, a young consultant for property firm Premier Plus approaches me with folders for a luxury project in the city, developed by a local firm. Without further ado, he offers nine years guaranteed return of more than 6% and shaves 30% off the list price. I ask if he’s worried about oversupply.

“No, not at all,” he initially says, but – after making sure no one else can hear us – alters his answer. “Actually, there are too many Chinese developers here. It’s not good for the market. It makes me very worried.”